Can I Keep the Proceeds of a Settlement or Verdict if I Have Filed for Bankruptcy Protection?

Often, one of the primary factors that leads people to seek protection through a bankruptcy proceeding is a personal injury. If you’ve been hurt, you may be unable to work, and unable to meet your financial requirements, leaving you with no other choice but to seek bankruptcy protection. With a Chapter 7 filing, you can permanently discharge some of your debts in exchange for the transfer of property, including cash, to the bankruptcy trustee.

It’s not uncommon, though, to receive a damage award, in the form of a settlement or verdict, after you’ve initiated a bankruptcy filing, or even after the proceeding is completed. Can you keep the proceeds? Will they all be taken by the trustee to satisfy your debts?

If you’ve filed for liquidation under Chapter 7, and you’ve met the requirements of the “means test,” any compensation you receive while still in the bankruptcy process becomes a part of your bankruptcy estate, subject to applicable exemptions under state or federal law. Furthermore, even if you haven’t filed a personal injury lawsuit when you seek bankruptcy protection or haven’t filed one at the time your bankruptcy is over, you may still be required to give any funds received in a subsequent lawsuit to the bankruptcy trustee, provided you had the right to file the lawsuit while your bankruptcy was pending.

In Texas, there is no exemption for the proceeds of a personal injury lawsuit. The federal laws do, however, provide an exemption of $23,675 for such settlements or verdicts.

Contact Heath, TX Bankruptcy Attorney Carrie Weir

I offer a free initial consultation to all potential bankruptcy clients. Contact my office by e-mail or call me at 972-772-3083 for a private meeting. With offices in Rockwall, Texas, I represent clients in Heath, Greenville, Lavon, Wylie, Mesquite and Rowlett.